What Happens on August 2nd?

| Wed Jul. 27, 2011 12:53 AM EDT

Here's the latest from the Wall Street Journal on how Main Street is reacting to the debt ceiling stalemate:

In a recent survey by the Association of Financial Professionals, which represents treasury and finance executives, half of the 305 respondents said failure to reach an agreement by the Aug. 2 deadline would have a detrimental impact on their access to capital and short-term investment strategies.

Half of the respondents planned to take defensive actions, such as a freeze on hiring, reducing capital spending and drawing on credit lines to build cash, the AFP said....A quarter of the companies surveyed that hold U.S. Treasury securities said they would sell at least some of them if Congress and the White House failed to reach a deal.

....Corporations are worried about a default because the consequences for the financial system are unknown. Treasurys serve as the basis for companies' borrowing costs, are key holdings for banks and money-market funds and are used as collateral in short-term lending markets.

I'm still flummoxed about this. If we run out of money, the federal government will stop paying some of its bills. That's bad, and it will quite likely have a negative effect on the economy. Corporations are right to be apprehensive about this.

But that's all that will happen. Treasury bonds will continue to roll over and interest payments will continue to be made. That means there's no reason to sell Treasurys; no reason they can't continue to be used as collateral; no reason that access to capital should dry up; and no reason that companies will need more cash.1

At least, that's how it seems to me. What am I missing here? I feel like I must be an idiot or something. Is the answer something so obvious that no one ever mentions it, or something so arcane that it never gets explained in lay terms? Or is everyone else crazy? Or what?

1And, by the way, no tangible reason that ratings agencies should downgrade U.S. debt. We're going though a political dispute, not a crisis that impairs our ability to service our debt.

Get Mother Jones by Email - Free. Like what you're reading? Get the best of MoJo three times a week.